In May 2001 Microsoft started an OEM development program with advanced proprietary video scan conversions (ASIC) company FOCUS Enhancements to develop a new TV-Out chip in order to reduce costs on the manufacturing of its Xbox games console. Yesterday Focus Enhancements announced that development of the chip, called the FS454, was complete, and exceeded the specifications outlined by Microsoft.

The completion of the deal keeps FOCUS Enhancements as “the leading low-cost TV-Out technology company.” The FS454 is several U.S. dollars cheaper than the technology currently used in the Xbox, and will allow Microsoft to recoup some of the reported US$150 it loses on every Xbox hardware sale at the moment.

In terms of technology, the FS454 includes four DACs and a patented 2D adjustable flicker filter, allowing for improved visuals and text display. Not only does it have improved technology, but the chip also uses a 0.18 micron process so it produces less heat and uses less power.

FOCUS is currently awaiting the first production order from Microsoft.

MATTHEW'S OPINION
As with all new consoles, MS is going to lose money for a year or so, but will soon make it back through the royalties it gets back from every game sold. It will probably be almost another year before Microsoft starts to break even on the hardware, and that doesn't take into account future price cuts it might take.

The only other problem MS haS at the moment is with nVidia, and the amount it's paying the graphics chip company for the chips it supplies. If MS loses that court case then Xbox losses could increase.

It will be interesting to see if there is any difference in quality between an Xbox that contains the FS454 chip and an older model. The fact that FOCUS Enhancements has managed to not only make the chip for less but also make it cooler and use less power bodes well for the company's future success. I am sure other console makers will be talking with FOCUS about their next console or cost-cutting in current models, and I would be surprised if FOCUS hasn't already introduced itself to Nintendo and Sony.

USER COMMENTS 56 comment(s)

This is news?(9:38am EST Fri Aug 23 2002)Wow, so it will cost them about $.60 less per xbox, who cares? Like printer, cell phones, and other consoles, they make money off the consumables, not the unit itself – by First Post

MS taking a loss(9:55am EST Fri Aug 23 2002)In all honesty, the losses Microsoft is taking on the XBOX game console is chump change, so don't feel too sorry for them.

I have to admit though, I am a PS2 fan, but looking at a recent flyer from a local game store, I would have to say the XBOX would be my choice if I was buying a console today. First, the majority of new games coming out are duplicated on both the XBOX and the PS2, second, the XBOX does have a hard drive which at least would make it run as an MP3 server for a home entertainment system, lastly, the price is the same as a PS2.

I don't know what Sony is thinking because the PS2 just doesn't compete against the XBOX in price and features. Given that 80% or so of the games are duplicated on both platforms, there really is nothing drawing people to the PS2. I would have to say the PS2 should be priced closer to the Gamecube rather then the XBOX.

Asside from that, if I owned an XBOX, I would be miffed that MS is consideirng improving the video quailty of newer XBOX using new technology. Why should someone that waited over a year get a system for cheaper and better quailty then someone who was an early adopter? – by Topher

Typical dot-com business mode(9:57am EST Fri Aug 23 2002)Burford: This model is also applied to ink jet printers (loss on hardware make profit on ink carts & paper), cellphones (loss on phone, but make up on services), heck, even men and womens razors (loss on device, make up on consumable razors), Swiffer (give you the broom, but make up with the anti static cloths), etc. etc. It is the late 1990's, early 2000's business model of choice. – by TCO

Topher(10:01am EST Fri Aug 23 2002)Systems get upgraded all the time. Sony is planning on building their new EE with the GS right on the same chip, most likely creating less heat, and probably a smaller fan and less noise. As for the TV-out chip, something tells me that games won't look any different with the new chip, and the new features could be used if it were used in a Digital VCR or whatever. – by Specter

Sony ….(10:56am EST Fri Aug 23 2002)Has never lost a dime on a single PS. Long ago folks lost money on Game Consoles and tried to make it up on game sales. Those folks are no longer in business. Sony has never lost a dime on the PS1 or PS2 and I'm sure they don't plan to any time soon. M$ is trapped in lossing money for two reason, first they have the cash to blow so it was easier and second they were caught by suprise that the market wouldn't pay their initial cost (which by the way would have made money shortly after the first round of cost reductions.)

Now they are in a big hole with nowhere to run but to do a complete redesign. They now realize they can't move the market up scale and have to play in the sub $200 realm. – by NetGuy

Sony must have lost money(12:03pm EST Fri Aug 23 2002)SOny must have lost money, that's life, I'm losing money on the developement of systems until there ready, I cannot expect to not lose money in R and D.

Sorry Netguy untill the hardware/software is on sale your losing money, thats just the way it is!

For the first 6/12mounths you hope to god not to lose yet more money if you can find and way to reduce cost DO!

But I'm sure Sony has lost money per unit on the PS/PS2 and Microsoft live with it you may never make any money on the Dam Xbox unless you go full System on Chip and I know of beter people than you who tried that and failed! – by RAB

MS's business model….(12:12pm EST Fri Aug 23 2002)is actually the best I have seen for consoles. They are starting a platform, using commodity parts, with multiple uses. When they release their XBox2, they could use an nVidia/x86 chips at a low enough cost to actually make a profit on unit sales. They also have the ability to buy components for cheaper. I am sure a GeForce3, 64MB RAM, a HD, and a sub 1GHz CPU sell for much less than they did when the XBox was designed. Each year, they should be able to cut their lossees by a sizeable margin.

They had to lose money at first because it required such expensive equipment to produce a console with a better user experience than the PS2. Now, a $200 graphics card runs circles around those GeForce3's (which sold for $400 when the XBox was designed).

Sony & Nintendo have custom-built chips. MS uses commodity CPU's, RAM, and GPU's. The only thing they special-order is the chipset and motherboard, both being slightly modified versions of the commercially released and tested nForce platform.

The cost of producing an XBox goes down much faster than their proprietary competitors and I think that is a good thing for the consumers. The XBox R&D can be applied to PC's as well as future MS video appliances, which they have hinted at. I'm expecting video servers, sending data to your TV, controlled by Tablet PC's in the next 2 years. Billy G has hinted at them and I will probably buy one if I don't lose my patience and build my own first. – by Steven

I like FOCUS, (12:45pm EST Fri Aug 23 2002)& have recommended the equipment to some public HSs. Digial camera-firewire-storage-streaming server allows parents to catch their kids school announcements at work. As for M$ hunting for paper loses: Yes, I can buy a PC with those components for less than $200. The x-box will need to be upgraded by the user in order for the model you are using to make sense Steven. Sony & Nintendo break new ground. Any M$ business model is not about breaking new ground, but waiting & stealing others work. – by tech

Xbox is hear to stay(1:38pm EST Fri Aug 23 2002)I hate to admit it folks, but I think Microsoft has a really good product here. They entered very late in the console game, and they inevitably have ground to make up for (meaning money). but it is truly the greatest gaming, PC or otherwise that I have ever done. Seriously 60 fps for Halo!?!? That's smooth killing…

Donít for a second think that Microsoft got into the console war as an experiment “just to see if it could make money at this too”. They got into it just like they did everything else. They got in to win. That means that they are in it for the long haul.

That's way past our small consumer scopes of time, which say that if the xbox comes out and not everyone buys it right away, Microsoft will abandon the project. They won't. Their decision to enter gaming isn't something they will give up on because people didn't buy their first offering. They will recondition that offering until people DO buy it, then they will make money by upgrading that offering. That's the shrewd frontier of business.

I think Xbox is here to stay, and as far as I've seen it is hands down the best gaming platform I have ever seen.– by blind consumer

XBox with UltimateTV(1:50pm EST Fri Aug 23 2002)My bet is this is going to go into the version of X-Box with a DVR built-in (I think they called it the Platinum XBox). Word is it will be going for $500, if they are losing $150 per console right now, they will actually turn a profit on the DVR version. – by Meester

Steven(2:29pm EST Fri Aug 23 2002)Good points, the one thing is the N2A (XGPU) is actually closer to a GF4 than GF3. The N2A has a second vertex shader, giving it more power than any other GPU around at the time. And the nForce was adapted from the Xbox version to a socket A design.

TechYou say Nintendo is breaking ground, how? They use a graphics chip that isn't much powerful than PS2, and was developed by ArtX (now ATI) which made embedded graphics. And they didn't do anyting spectacular with Flipper? is that the processor? anyways, thats just a basic powerPC chip. Sure Sony has gone proprietary, but what does it get them, a system hard to write for and can't use FSAA causing jaggies. MS isn't stealing ideas, they buy them from the people who make them (Intel, nVidia) – by Specter

tech, think about it…(2:38pm EST Fri Aug 23 2002)Actually, MS was the first to introduce scroll-wheels on mice. While this is not mind-blowing, it was something MS introduced before everyone else. If memory serves me correctly, they were the first to market with optical mice also.

Back to the topic. Whoever makes the Nintendo chip has one buyer for that model…Nintendo. Intel can sell their CPU's (wasn't it a P3 866?) to Dell, IBM, HP, or directly to the consumer, lowering prices for the commodity. You seem to assume that MS built all their XBoxes before launch and will never build them a again. When MS makes XBoxes now, I bet they pay less for their P3's than they did at launch. With each reorder, the commodity component prices should go down. Granted, I am not an MS insider and can't say exactly what they pay, but you'd assume MS gets at least the same deals you and I get today. If Nintendo's chipmakers piss them off, they have to negotiate in court. If MS gets pissed at nVidia or Intel, they can go with ATI or AMD and in a very short amount of time have a new product out on the market that runs existing games twice as fast. If the XBox market slows down, MS could build emulator packages to get the games to run on PC's. MS has several options that Nintendo, Sony, Atari, and Sega don't have (or didn't have). XBox partners are more willing to invest in XBox than competitors because technology applied to XBox can be transformed into a GeForce3, an nForce motherboard, or a P3. Games written in the XBox's DirectX can easily be ported to PC's.

I don't play console games, so I am an unbiased outsider. I can see that MS has picked a superior technology model and I wish Sony & Nintendo would adopt a similar one (maybe a console running on Linux/OpenGL using PC parts).

MS does innovate and they innovate frequently. You probably just ignore their innovations because not only do they not promote their innovations like IBM, and things like optical mice don't make for interesting headlines. – by Steven

“I am an unbiased outsider”…(3:27pm EST Fri Aug 23 2002)that doesn't remember Apples Lisa or the real inventor of the scroll-wheel mouse. CAD cos had optical mice before M$ was started. I understand that the parts for x-box get cheaper, as it's tech goes obsolete. The proprietary model used by sony & nintendo is so that others do not steal their work, so I am sure that you hope they change. M$ promotes BS like this every day, and uses people like you to FUD media to confuse the consumer. Thanks for proving my point. – by tech

re: Steven(3:31pm EST Fri Aug 23 2002)the processor is not a commodity part… its a 133mhz fsb celeron. you can't by that on the street. – by next362″

re: tech(3:35pm EST Fri Aug 23 2002)i own a lisa… just imagine that once upon a time it was a 10,000$ computer. now im thinking of converting it to a fishtank… – by next362″

Just FYI…(4:54pm EST Fri Aug 23 2002)The NES used a modified MOS Technologies 6502 processor – which was also used in the Apple II, Commodore and Atari computers, and in a crippled form in the Atari 2600. While I agree MS is pretty good at innovating, and more so at bringing older ideas to the mass market, the idea of using common, non-purpose-designed components for a gaming console isn't theirs. – by TeamNutmeg

It's just stupid business (7:33pm EST Fri Aug 23 2002)Let's say Microsoft makes about $5 profit off every game sold for the Xbox. Which is a high because it is really around $2 per games. However at $5 a game each Xbox owner would have to buy over 30 game for Microsoft to see a profit.

The profit per game is a factor of the fact that 3rd parties are writing the game and taking the larger part of the money of the games sales.

If Microsoft is only getting $2 per game then each owner of and Xbox would have to buy over 75 games for Microsoft to see a profit on the Xbox.

It's just stupid business.

– by Rax

Fucus(9:51pm EST Fri Aug 23 2002)I used to write all the software for Focus, back when I was young and stupid. Focus is pure crap. – by PapaSmurf

tech(5:22am EST Sat Aug 24 2002)take your rittilan – by med aide

Topher (5:51am EST Sat Aug 24 2002)earlier you metioned that mos games games are being duplicated onall systems but i like to state af act cos on the X box versions tend to be a lot more than the just plain duplicates take blood omen 2 for example the graphics on the xbox version kick the crap out of the PS2 version (ive seen my freinds BO on ps2 and i have it on XB) and it still doest use the full range of the boxes ability!!!

and they say that the verson of turok on the x box will enialate the other versions graphically

and dont forget to metion the 70 something exclusives that are in the works for the box they will be far graphically superirior to any “all paltforms” games!!!!!!! – by Grunt

Rax(1:03pm EST Sat Aug 24 2002)how do you get $2 profit on a $50 game?

– by warplex

re: med aide(2:16pm EST Sat Aug 24 2002)ritalin.i think you should take your ritalin… help you concentrate and maybe you might even learn how to spell – by webmd.com

CONSOLES SUX ASS, I LEARN THAT ONCE I GOT MY FIRST COMPUTER! COMPUTER CAN GET EMUALTORS TO PLAY ALL THE REGULAR CONSOLE GAMES AND MORE!!!. PLUS YOU CAN DOWNLOAD THEM FOR FREE. DOES THAT MAKE ANY SENSE TO YOU???? – by Nightwing749

MS isn't stupid(7:43pm EST Sat Aug 24 2002)Believe it or not they actually make money. One way or another they make money. – by dad

Re:Warplex(2:19am EST Sun Aug 25 2002)How do I know? because I did some work for a company that was making games for the Xbox and I can tell you that if they did not get to keep 90% of the money for the game they developed, they would not have made any games for the Xbox.

I also know that Microsoft have to fund this company upfront to get them to start converting their old games to the Xbox.

Microsoft spent 2 Billion to develop the Xbox. Another billion to advertise it. Another 100 million to pay off game developer. Now we find they are losing $150 per game unit.

By the time they break even Xbox2 will be here and the cycle will start over again.

Microsoft spend 2 billion of it's 4 billion R&D budget on the Xbox. I feel that money could have been better spent on securing XP and Win2000 instead is a STUPID game unit.

It might be a great game unit. It might have the best graphics.

But in the end it was a bad investment.

– by rax

IBM made optical mice b4 MS(5:10am EST Sun Aug 25 2002)tech said – “they were the first to market with optical mice also.”IBM was selling optical mice back in 1993. I had one, it had two sensors instead of one.

– by Paul

Optical Mice(2:08pm EST Sun Aug 25 2002)Optical have been kicking around since about 1985 that I know of and maybe even longer they were just very expensive way back then – by RAB

M$ – smart!!(3:23pm EST Sun Aug 25 2002)Focus chip is just one of many cost cutting moves that will help position M$ to take the market by storm. Focus will probably get calls from the other players and M$ will be forced to buy them. JMO – by gmeanman

Optical Mice(5:48pm EST Sun Aug 25 2002)The first optical mouse that did not require a special mousepad was marketed by Apple. Yes, that's right, Apple. The Apple Pro Mouse was followed within a few months by Microsoft 'innovative optical technology'. The concept of an optical mouse goes back 20+ years, however I had one on my Tektronix 6130 back in 1986 and it was by no means new at that point. – by Someone over 13

Intergraph had a…(8:29pm EST Sun Aug 25 2002)CAD station with a tablet/mouse/curser in 1972. – by tech

Further Rant…(9:21pm EST Sun Aug 25 2002)Douglas Engelbart took the stage at the San Francisco Civic Auditorium in December 1968. Engelbart was moving a device under his hand, a chunky, square box with a few buttons, tethered to the machine with a cord. He and his colleagues had called it a “mouse,” after its tail-like cable. With this mouse, Engelbart was able to select text, move it around, and otherwise manipulate it. He thought it up in 1950. – by tech

optical mouse(6:26pm EST Mon Aug 26 2002)The today's optical mouse isn't the same as yester-year optical mouse. First off, the older optical mouse requires a reflective surface like a mirror. Today's opticals use a tiny digital camera that takes a snapshot of the surface. When you move your mouse, it computes the delta of movements. So, optical mouse isn't optical mouse… – by whatever

Innovation?(4:49pm EST Tue Aug 27 2002)The Xbox? Excuse me? It uses an out of date PC motherboard, an out of date PC processor chip, out of date PC ram, it has a tweaked but now obsolete video card, and sound card, it runs on a stripped down windows CE operating system and has a fairly dinky by modern standards harddrive. The Xbox has never been about innovation, not in terms of the hardware. Its about selling a machine with the lowest cost per unit price possible and still losing money. Of all the systems its the most PC like and the easiest to emulate. It also has most of the same hardware design flaws inherent in PC's. – by Who me?

what is this a bill gates cry party?(4:49am EST Thu Sep 05 2002)i love console and pc games, ive owned every console except a ps2, xbox is the best gaming system ever made, hands down. for every 10 xbox games thier may be 2 to 3 semi crappy games, but each 1 game is worth buying an arcade machine upfront. its sad that the only thing that xbox has not going for it is the reputation that bill gates has made for himself with other net geeks constantly whining and complaing about bill, as for microsoft not making a profit, xbox sales are a smidgen of what microsoft makes and how much money bill gates has. xbox is mainly just dreamcast 2 as far as im concerned, dreamcast re-vitalized the console and gaming industry with japanese games,sony turned around and stole all of dreamcasts market with a massive add compain which is the only reason i didnt buy a ps2, ill pass and wait until ps3, as for gamecube i owned one for 3 months and sold it (just like my n64). the only thing i wish is that xbox was more like a pc and it would be easier for the average joe to program and build games for it rather than large software companies, which is why pc games are so pop. id rather play my xbox though as pc games have too many cheaters and too much disfunction with people playing eachother with outmoded hardware (someone playing someone on a 56k pentium II 233 against a pentium 4 cable modem is hardly fair, one of the reasons ive almost dropped out from net gaming). xbox rules hand down, i remember how many idiots were badmouthing it just because bill gates was involved, if bill would quit and have another pr man for his company maybe people wouldnt view xbox so badly. its nice to see people online supporting american products . give billy and the xbox a break kids n nerds. – by joe blow

haha..just an afterthought(5:56am EST Thu Sep 05 2002)note sarcasm in that last remark about supporting american products (snicker), also to note dreamcast used an windows os,xbox isnt the first console to do so back when microsoft had an interest in sega, hence the dreamcast 2 remark, games that ive played on xbox are better than arcades, ive never said that about any console or pc game (graphic wise/playablity), gunmetal is awesome forget halo, id pay full arcade machine price for it (halo is great also as many other games, i cant say the same for ps2, even spyhunter for xbox is 100 times better than the ps2 version). has anyone been to an arcade lately? LOL. id put an xbox game against an arcade any day, i cant say that for the ps2 games ive seen, the only thing ps2 has going for it is the japanese games, why bill hasnt bothered to put that many out on xbox beats me, specially since foriegn japanese games helped spur back the market with dreamcast. the only thing that suprises me and i laugh about is geeks speaking geektalk about specs that the average buyer scratches thier head. they said the car was a bad idea as well when it was first introduced. go figure. in the marketplace thiers rarely such thing as an original idea to begin with it largely constists of companies and individuals ripping eachother off, nintendo ripped off atari, etc. etc. bill needs to market more for public consumptian than specs and improve the lastability of his games by making his games more expandable and programable (mods, characters, etc) to the average user like he originally promised than upping the box. pc rules over console in that regards hands down, if only they could put an xbox graphics board in a pc console. – by joe blow

^above(11:53am EST Thu Sep 05 2002)AMEN – by Nod

you dont see the big picture…(7:43pm EST Mon Sep 23 2002)Ok..M$ loses $150 per hardware sale. thats nothing to them – they have billions in retained profit..its all about BRANDING for now. xbox will be a household name, and then when xbox 2 rolls out, sales will grow, games will be available, etc etc. backwards compatibility and all that I expect.

M$ is not stupid. They know how to make money, and have a solid business plan.

They dont just make money on games. They get royalty kickbacks on everything. Controllers, link cables, all hardware (even more if its official stuff) – plus every single game released is liscensed $$$!!

then we have the multiplayer network. mmmm…more cash.

every new batch of xboxes made have a lower price due to obsolescense of the equipment, as discussed above.

the big picture is more than simply loose money on the hardware, and make it on the game sales..

oh, and lastly..”How do I know? because I did some work for a company that was making games for the Xbox and I can tell you that if they did not get to keep 90% of the money for the game they developed, they would not have made any games for the Xbox.”

First off, the audio on the Xbox is not outdated. I have a computer based on the NForce, and I have used the Xbox. That audio, in addition to have about 15-25% less CPU needs that a Creative Audigy, sounds better.

As for them making money, of course they're making money. You wanna get a better look? Tell you what. Look on the 'net, and buy exactly 1 share of microsoft stock. You're now a stockholder, and you get a bit of info.